Tyson Foods’ third-quarter net income expected to drop 86%

It’s another down cycle for Tyson Foods. The Springdale-based meat giant is expected Aug. 7 to report a third fiscal quarter net income of $95.3 million, well below the consensus estimate. And it’s a trend that could continue for several quarters.

The consensus estimate of per share earnings of 27 cents would be 86% lower than earnings in the same quarter of 2022. Consensus revenue is $13.521 billion, up 0.2% from a year ago. Consolidated operating income is forecast at $170.1 million, down 83% year over year. Tyson is expected to see losses in beef and pork and a break-even in the chicken segment.

Tyson chicken sales are forecast at $4.106 billion, down 5.9% from the year-ago quarter. Despite Tyson’s own self-help improvements being on track, analysts with Stephens Inc. say the company’s profits are likely near $0 during the quarter. Consumer demand for chicken has waned during the summer, causing inventories to rise, which lowers the price and hurts margins. Cold storage volume for chicken at the end of the quarter was up 11.3% year over year at 861.4 million pounds.

“If this persists, higher cost operators will have to curb production as losses mount. We think we are nine months into the current down cycle. As the cash burn continues for commodity-chicken processors, Tyson should be in a position to deliver higher margins into 2024,” noted Ben Bienvenu, an analyst with Stephens Inc.

He said processors were helped to some degree by lower grain prices compared to a year ago, but the lack of demand and excess production outweighed the positive impact of 19% lower corn costs from a year ago.

Tyson’s beef segment also had challenges in the quarter, with total sales expected to be flat at $4.959 billion. The beef segment is expected to report an operating loss of $49.6 million, down 109% from a year ago. The negative performance occurred as the beef industry saw more resilient prices relative to cattle costs. Stephens reports beef production was down in the mid-single digits during most of the quarter, and that is expected to continue. Packer margins are expected to be under pressure through the rest of 2023 amid declining cattle herd numbers.

Tyson’s pork business is expected to report an operating loss of $47.6 million in the quarter, down 290% from a year ago. Pork sales are forecast at $1.586 billion, down 2% year over year. Hog prices were down 25% in the quarter, pork prices were down 22%, and packer margins were down 12%. Stephens said Tyson’s margin was better than the industry average, but the sector is likely to struggle through 2023.

Tyson’s diverse prepare foods business was the shining star of the portfolio, with anticipated sales of $2.642 billion, up 8% from a year ago. Operating profit is pegged at $251.1 million, with an operating margin of 9.5%, an overall healthy segment performance. This segment includes products sold at retail and in the wholesale food service sector. Tyson said last quarter, the retail business in the segment was growing share while the food service business remained soft. Analysts expect the prepared foods segment to outperform the other segments in the next couple of quarters.

Tyson has been growing its international business over the past five years. The segment is expected to report sales of $650.2 million, up 8% from a year ago. The segment’s operating profit is forecast at $16.3 million, with an operating margin of 2.5%.

Stephens recently adjusted its earnings per share estimate from 10 cents per share to 17 cents reflecting better-than-expected results in the beef and prepared foods segments, but it’s still lower than the consensus 27 cents. For the full year, Stephens estimates Tyson Foods will earn $1.40 per share, up from $1.35.

Tyson Foods shares (NYSE: TSN) closed Thursday (Aug. 3) at $56.27, up 86 cents. Over the past 52 weeks, the share price has ranged between $41.11 and $87.87. The share price is down about 10% year to date.